Partnership is a relation that subsists between persons carrying on a business in common with a view to profit. A partnership is an unincorporated business. However, its partners can be an entity in any one of the four legal entities. The income or loss of a partnership is allocated to its partners. Therefor if a partner who is an individual, the income from the partnership is taxed at personal income tax rates.
Advantages of partnership:
1 The setup costs of a partnership are relatively low if compared to corporation.
2 A partnership is less regulated than a corporation. A partnership agreement can be drawn up to avoid unwanted arguments and issues.
3 Business losses can be written off against other income of individual partners.
4 Pooled Broader experience, knowledge and skills.
5 Power of partner to bind partnership. Every partner is an agent of the firm and of the other partners for the purpose of the business of the partnership, and the acts of every partner who does any act for carrying on in the usual way business of the kind carried on by the firm of which he or she is a member, bind the firm and the other partners unless the partner so acting has in fact no authority to act for the firm in the particular matter and the person with whom the partner is dealing either knows that the partner has no authority, or does not know or believe him or her to be a partner.
Disadvantages of a partnership:
1 The biggest concern of a partnership is unlimited liability if partners are individuals. The partners are JOINTLY liable for all debts and other liabilities of the business. If the business is sued, all the business and personal assets of very individual partner are at risk. An exception to this is a Limited Partnership. Limited Partners, who only contribute capital but do not actively participate in the management of the business, will have their liability limited to the amount of capital that they have contributed. The partners who participate in the management of the business are called General Partners, and will still have unlimited liability.
2 All Major Decisions may have to be made jointly.
3 If the business is profitable, and the partners are individuals, it will usually be paying higher taxes than if it was incorporated as a Canadian controlled private corporation.
4 The death or retirement of a partner will not end the partner's liability for debts and obligations of the partnership that were incurred prior to the death or retirement. It will be passed to the partner’s estate. Also, if a partner retires and does not make the retirement publicly known, he/she could still be held liable for obligations incurred by the partnership after the retirement.
5 Partners are bound by acts on behalf of partnership. An act or instrument relating to the business of the firm and done or executed in the firm name, or in any other manner showing an intention to bind the firm by a person thereto authorized, whether a partner or not, is binding on the firm and all the partners, but this section does not affect any general rule of law relating to the execution of deeds or negotiable instruments